The Securities Scam

BY:Veenu Raj

Securities scam

“Securities Scam” refers to a diversion of funds to the tune of Rs. 4,000 crore from the banking system to various stockbrokers in a series of transactions during the period April 1991 to May 1992.

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Exposure of securities scam

On 23 April 1992, journalist Sucheta Dalal exposed Mehta's illegal methods in a column in The Times of India. Mehta was dipping illegally into the banking system to finance his buying.

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Harshad Mehta Born in : 29 July1953

Died in : 31 December 2001

Profession : Stockbroker

He earned degree in bachelor of commerce

Started his working life as an employee of the New India Assurance Company

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In 1981 he became a sub-broker for stock broker J.L. Shah and Nandalal Sheth

Quit his job and become a jobber on BSE for a stock broker

Started career as a clerk of New India Assurance Company

Start his own venture Grow More Research and Asset Management Company Limited

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Harshad Mehta went on to become one the most successful broker- the

rags to riches story, thereby earning the nick name of “THE BIG

BULL” 612th October

Instrument used in scamReady forward deal

Bank recepts

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Ready Forward DealA secured short-term loan from one bank to another (typically 15-day)

Bank lends against government securities

A broker usually brings together two banks for which he is paid a commission

The securities and payments were divided through the broker in the settlement process

In such settlement the bank may not know with whom they are dealing

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Process of Ready Forward Deal

Settlement process

Payment of cheques

Dispensing of securities

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Bank receiptsIn a Ready forward deal securities were not moved back and forth in actuality

The borrower, i.e. the seller of securities, gave the buyer of the securities a Bank Receipt

Bank receipts serve three functions

1) Confirms the sale of securities

2) States that the securities are held by the seller in trust for the buyer

3) Acts as a receipt for the received money by the selling bank

In this scam Bank of Karad & Metropolitan Co- operative Bank had issued fake BR

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Borrower Bank Lender BankBROKER

Harshah Mehta

FUNDS

Issue Fake BR

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Where has all the money gone?

Invested in share

A part of money was went of India

Spent on bribes and kickbacks

Finance the losses taken by the brokers

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Major culpritsHarshad Mehta & his associates

Sudhir Mehta

Bank of karad

Metropolitan Co-operative Bank

Vijaya Bank

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Impact of the scamMehta had by then swindled the banks of a staggering Rs 4,000 crore

Bribery case on P.V. Narsimha Rao

Stay on liberalisation

BR was removed by RBI

The chairman of the vijaya bank committed suicide over

Sensex fell from 4500 to 2500 loosing 100,000 crore in market capitalisation

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Conclusion

Harshad Mehta was brave stock broker. He knew the loopholes in banking system as well as how to exploit that loopholes. His whole intension to do this was to rise in SENSEX

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Thank You